![]() ![]() When covering investment and personal finance stories, we aim to inform our readers rather than recommend specific financial product or asset classes. "My guess is the stage three tax cuts won't have anywhere near the stimulatory effect that their sticker value, and much public commentary, suggests," he said.The journalists on the editorial team at Forbes Advisor Australia base their research and opinions on objective, independent information-gathering. Steven Hamilton, assistant professor of Economics at George Washington University, said the inflationary effect was likely to be too small to make a difference to the merits of the tax cuts. "There is a real question about that additional stimulus coming through the economy at the same time as you're trying to slow down the economy and take those inflationary pressures out." And while the stage three tax cuts are not the most inflationary policy you could have, they are certainly inflationary," she said. "We're still going to have an inflation challenge. Rough estimates by economists have suggested the inflationary effect of stage three would be big enough to shift the inflation forecast modestly but would be about two-thirds the size of the impact of an evenly distributed tax cut.Īngela Jackson, lead economist at Impact Economics, said any contribution to inflation was big enough to matter and the timing was concerning. ![]() This feature is central to the debate about fairness, but plays a different role here because people on higher incomes typically spend less and save more of any extra money than those on lower incomes. Because tax rates apply cumulatively, someone with a taxable income of $45,000 will get no benefit while those earning above $200,000 will get $9,075. Stage three will apply a uniform tax rate of 30 per cent to taxable income earned between $45,000 and $200,000. One reason to think the effect may be small is that the cuts are skewed towards higher income earners. Simply by giving people more money to spend, the stage three tax cuts are likely to be somewhat inflationary. ![]() The government has been quick to highlight that sort of analysis when it suggests policies have reduced inflation – ministers can recite the effect of childcare policies and energy bill relief to one decimal place.īut on the stage three tax cuts, there is no such specificity. To isolate the inflationary effect of a policy requires specific analysis. This further diminishes their ability to identify the effect of the tax changes on inflation, which after all is not what they are designed to do. That means they factor in the money people retain from tax cuts, but not what they choose to do with that money. But the effect of individual policies cannot be disentangled.Īlso, Treasury forecasts do not consider decisions people make in response to policies (the so-called second-round effects). Government policies - such as migration targets, spending, and tax settings - are all baked in to these figures. Treasury's economic forecasts produce a single figure for inflation (and for other key figures, including unemployment, wages and growth). ![]() That distinction sounds academic but is material. Treasurer Jim Chalmers this week repeated that the inflationary effects had been baked into Treasury's inflation forecast.īut this sidesteps the fact that the government has not commissioned any specific modelling, as confirmed in a request for documents from independent senator David Pocock last month. The cuts have been subject to continuous debate since their conception in 2018, mainly over their fairness.īut the separate question of whether they are inflationary has gathered momentum as the start date for the cuts (July 1) draws nearer at a time when inflation remains elevated. ![]()
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